This is from the “Accounting Makes Cents” podcast episode #84 released on Monday, 10 March 2025.

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So as a continuation of the series, this is the third episode on consolidated group accounts. For today, I’d like us to break down the essentials of related party disclosures. Now, let’s be honest—related party transactions are everywhere in business. But that’s exactly why they can be a problem. When companies deal with people or businesses they’re connected to, there’s always a risk that things won’t be at arm’s length, which I’ll explain in a bit if you don’t know this terminology. But this is where IAS 24 comes in—to bring some much-needed transparency.

In this episode, we’ll unpack what IAS 24 actually covers, how to identify related parties, what needs to be disclosed (and what doesn’t), and common mistakes that trip students up in exams.

So, whether you’re prepping for an exam or just trying to wrap your head around IFRS, this episode will help you gain a basic and clear understanding why related party disclosures matter—and how they can impact financial statements.

Jump to show notes.

What is IAS 24?

Let’s start with the basics. IAS 24 is not about banning related party transactions—it’s about making sure they’re disclosed properly.

The standard exists because when companies do business with related parties, there’s a risk of unfair pricing, conflicts of interest, or even fraud. Investors and other users of financial statements need to know if a company’s numbers are influenced by relationships rather than market forces.

Imagine a company buys goods from its subsidiary at an inflated price to shift profits around. Without disclosure, the financial statements could be misleading. IAS 24 forces companies to be upfront about these kinds of deals. IAS 24 is about transparency, not restriction. It doesn’t say companies can’t do business with related parties—it just says they have to be open about it.

Identifying related parties

Now, this is where students often get stuck—who actually counts as a related party? It’s not just about parent and subsidiary companies.

IAS 24 defines related parties broadly. The key idea is that if there’s control, joint control, or significant influence, the relationship needs to be considered. Let’s break it down into clear categories:

1. Parent, Subsidiaries, and Fellow Subsidiaries

The most obvious related party relationships exist within the same corporate group. If one company controls another (like a parent and its subsidiary), they are related. But what many students forget is that subsidiaries of the same parent company are also related to each other, even if they don’t transact directly.

2. Associates and Joint Ventures

Companies don’t have to be fully owned to be considered related. If one company has significant influence (typically ownership of 20% to 50%) over another, they are considered associates and must disclose transactions. Similarly, in a joint venture, two or more companies share control over an entity. Since joint control exists, transactions between these parties must be disclosed.

3. Key Management Personnel (KMP)

This is where things get personal. Key management personnel (KMP) refers to those with authority over financial and operational decisions—so, the CEO, CFO, directors, and senior executives. A common mistake in exams is forgetting that KMP includes both executive and non-executive directors. Even if a director isn’t directly involved in day-to-day operations, they still hold power over decision-making.

4. Immediate Family Members of Key Management

Another area that students overlook is family relationships. If a CEO’s spouse, child, or close relative owns a business that transacts with the company, that business is considered a related party. IAS 24 does not require disclosure of distant relatives (e.g., cousins or uncles), unless there’s clear influence or control.

5. Entities Controlled or Significantly Influenced by Related Parties

It’s not just people who matter—companies, trusts, or partnerships controlled by related parties are also included.

6. Government-Related Entities (Special Rules Apply)

If a company is controlled by the government, it must disclose transactions with other government-related entities. However, IAS 24 provides some exemptions—companies don’t have to disclose every transaction if they operate in a heavily regulated industry where government involvement is routine.

Disclosure requirements

Let’s break this down further with an example.So, what do companies actually need to disclose under IAS 24?

There are three key things:

1. The nature of the relationship (e.g., “Parent-subsidiary relationship” or “Company X is controlled by a key executive”).
2. Details of transactions between related parties—things like sales, purchases, loans, guarantees, and even management compensation.
3. Outstanding balances, including unpaid amounts and terms of loans.

But here’s an important point: Not every related party transaction is material enough to be disclosed. The standard focuses on transactions that could influence decision-making.

For example, if a CEO’s spouse owns a company that provided $100 worth of office supplies, it’s probably not material. But if that company leases office space to the business at a below-market rate? That’s definitely worth disclosing.

Common pitfalls and mistakes

Now, let’s talk about where students often go wrong when studying IAS 24.

Mistake #1: Thinking that related party transactions are automatically fraudulent. They’re not! Many are completely legitimate—just disclose them properly.

Mistake #2: Forgetting to include key management compensation in disclosures. It’s not just transactions that matter—salaries, bonuses, and share options given to senior executives must also be reported.

Mistake #3: Misinterpreting what “significant influence” means. Owning 10% of a company’s shares doesn’t automatically make you a related party, but if you sit on the board and influence decisions, that’s a different story.

In exams, watch out for scenarios where relationships aren’t obvious—these are where IAS 24 questions try to catch students out!

Key takeaways

• IAS 24 is all about transparency—not banning related party transactions.
• Identifying related parties isn’t always straightforward—it’s about influence, not just ownership.
• Disclosure matters—companies must report the nature of relationships, transactions, and balances.
• Common exam pitfalls include forgetting key management compensation and misjudging significant influence.

Show notes simplified

In this episode, MJ the tutor continues with a series on the F pillar. She breaks down the essentials of related party disclosures—what qualifies as a related party, why transparency matters, and the common pitfalls accountants should watch out for. We’ll also explore real-world implications, from corporate governance to financial statement integrity. Tune in and uncover what happens when business gets personal!